Saudi Arabia and Kuwait: a Trip Report Shai Feldman
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Judith and Sidney Swartz Director and Professor of Politics Saudi Arabia and Kuwait: A Trip Report Shai Feldman Associate Director Kristina Cherniahivsky Shai Feldman and Tamara Cofman Wittes* Charles (Corky) Goodman Professor of Middle East History and Associate Director for Research Naghmeh Sohrabi rom February 15-25, the research team of Brandeis Myra and Robert Kraft Professor FUniversity’s Crown Center for Middle East Studies and of Arab Politics Eva Bellin members of its Advisory Board traveled to Kuwait and Saudi Arabia.** The group was joined by Tamara Cofman Wittes Henry J. Leir Professor of the Economics of the Middle East of the Brookings Institution. The trip included structured Nader Habibi dialogues, individual meetings with experts and government Renée and Lester Crown Professor officials, interactions with members of civil society, and of Modern Middle East Studies Pascal Menoret a special journey to the southern region of Saudi Arabia Senior Fellows adjacent to the Yemen border. A few weeks earlier, one of Abdel Monem Said Aly, PhD Kanan Makiya, Professor Emeritus the co-authors of this report also visited Oman. This report summarizes the two authors’ reflections regarding the Goldman Senior Fellow Khalil Shikaki, PhD domestic and foreign policy challenges currently facing these Research Fellow three Gulf Arab states and how they are confronting those David Siddhartha Patel, PhD challenges, including in relation to one another. Neubauer Junior Research Fellow Golnar Nikpour, PhD The countries we visited, together with most if not all members of the Gulf Cooperation Council, are facing three interlocking challenges: Junior Research Fellows Samuel Dolbee, PhD Nils Hagerdal, PhD Mohammed Masbah, PhD *The report reflects only the impressions of its two co-authors. It does not represent the views of the Crown Center, its Advisory Board, or the other members of the group who traveled to Kuwait and Saudi Arabia. **The Crown Center wishes to express its deep gratitude to its Advisory March 2018 Board member, Fouad Alghanim, whose generous gift allowed the Center’s research team to travel to Kuwait and Saudi Arabia. First, the effects of the violent fracturing of four Arab states (Iraq, Syria, Libya, and Yemen) resulting in the breakdown of the power balance in the region, and leading to a fierce competition for influence and positioning amongst regional and external powers, including Iran, Turkey, and Russia. Second, uncertainty about American policy and specifically the degree of U.S. commitment to its traditional role of preserving regional security against revisionist challengers. Finally, political and economic models, rooted in rentierism (non-tax income from energy resources), that are strained by economic globalization and youthful demographics and must now confront historic changes in global oil markets, making lower oil prices and smaller market share a reality for the foreseeable future. In turn, these challenges demand long-delayed revisions to these states’ domestic social contracts. Each of the countries we visited is responding differently to these three challenges – but all share certain concerns, including anxiety over Iranian influence, frustration over penetration into the region by Turkey and Russia, and dismay at what they perceive as withdrawal of American presence and influence in the Middle East. The Transformational Effect of “Lower for Longer” Energy Prices To varying degrees, in Kuwait, Oman, and Saudi Arabia, one impression seems inescapable: namely, the sense that the existing economic model of these states is unsustainable and that deep structural changes are therefore unavoidable. While this point has been made repeatedly since the 1950s, and while some such reforms have been implemented since the 1980s, there seems to be an understanding that deeper changes are now required and that their implementation is more urgent Shai Feldman is the Judith than ever. Thus, after decades of talk about the need for reforms to curb inefficient state social welfare systems and meet the needs of a large youth bulge, there is now and Sidney Swartz Director real urgency to the reform agenda. of the Crown Center. Largely, this urgency is driven by the sharp drop of oil prices from their peak in Tamara Cofman Wittes is a 2014, and by broader changes in global energy markets that mean prices are senior fellow in the Center likely to remain lower for the foreseeable future. New supplies from West Africa and North America, and the development of diverse energy sources for growing for Middle East Policy at the markets, mean that the oil producers of the Gulf can no longer either set or Brookings Institution. stabilize global prices. This year, for example, the United States is expected to produce more oil than the Kingdom of Saudi Arabia. Domestically, lower energy prices and large youthful populations make the old social contract rooted in expansive social welfare a budget-busting proposition for the Gulf states; without reforms, they will deplete their carefully-built sovereign wealth funds on domestic spending and build up large debts in a matter of a few years. To varying degrees, this conclusion has led almost all Gulf states to give greater priority to a common imperative: to reduce their economies’ dependence on oil. Thus, from Saudi Arabia’s Vision 2030 to Kuwait’s Plan 2035, the basis of all Gulf macro-economic plans is similar: to reduce the relative importance of crude oil 2 sales to economic growth and government revenue by growing non-oil and downstream industries (and in Saudi Arabia, by introducing new forms of taxation and by demonstrating a greater commitment to collecting such taxes); to curb government spending by shrinking public-sector employment and reducing subsidies; and to create more jobs for citizens entering the workforce by growing the private sector and reducing expatriate labor. At heart, this set of reforms would transform the citizens of Gulf Arab countries from entitlement-based consumers of government resources to shareholders in the national economy – both as stewards of national oil wealth and as wealth creators themselves. Inevitably, this transformation must involve a shift, not only in what government provides, but in what citizens expect. The social and political implications of such change may be far-reaching and not easily managed, which is one reason why these reforms have been resisted for so long. Promises and Risks in Economic Reform As noted, Kuwait and Saudi Arabia are taking very different approaches to this challenge. Kuwait is perhaps the best poised to manage low oil prices: its production costs are low, its sovereign wealth fund is well-established and legally protected, and its government budget rests on a lower price assumption (under $50/barrel, according to the IMF) than any other Gulf producer. Still, Kuwait is planning for a deficit in 2018-2019, and its parliament presents a tough obstacle to any significant shrinkage in government welfare programs. Members of Kuwaiti Parliament often give voice to the concerns of Kuwaitis who are employed by or benefit from the public sector and fear being “left behind” by the proposed reforms. Changes to the structure of parliamentary representation might be the only way to shift the political balance and open new possibilities for compromise on a reform agenda. Saudi Arabia’s Vision 2030 has caught the world’s attention as the most ambitious reform plan put forward by the Gulf Arab states to manage a future in which oil plays a much smaller role. After decades under aging and conservative leadership, the pace of decision making and the breadth of vision evident in the new Saudi leadership is striking and, for many of our Saudi interlocutors, eminently refreshing. Indeed, it is difficult to remain indifferent to the palpable enthusiasm Saudis we spoke to expressed for the “brave new world” that Mohamed bin Salman’s planned reforms promise. We spoke to older Saudis who have been advocating some of these reforms for years, as well as some who have been more cautious; both groups made clear that the reforms of Vision 2030 are not only urgently necessary but desirable for the future of the country. One described the imperative to change to accommodate the younger generation as “riding on a runaway train.” We also spoke to younger Saudis both in government and out who believe that Vision 2030 offers them opportunities for personal and professional growth that they did not expect to have when they were growing up. Less tangibly, we heard a sense that the young crown prince understands and can relate to the hopes and frustrations of Saudi’s majority: its young people. For example, while some expressed alarm about the sudden arrests of royals and businessmen last November, they also expressed relief that the crown prince understood public concerns over corruption, and sought to spread wealth more widely. This enthusiasm, which some western journalists and policy experts have found irresistible, should not, however, prevent us from seeing the risks associated with the planned reforms. Some of these risks are inherent to the enterprise: altering longstanding structures of power and privilege necessitates risk-taking. Politically, King Salman and his son are laying the basis for the first transfer of power to a grandson of the Kingdom’s founder, Abdul Aziz al-Saud. They are also shifting the monarchy’s political base from a network of royals and elites who live off state patronage to a wider, more populist base in Saudi’s overwhelmingly large rising generation. Making this shift requires sidelining those invested in the status quo, and Mohamed bin Salman is doing that largely by centralizing power in his own hands, marginalizing and discrediting other royal family members, and promising young Saudis better services, greater social freedom and wider economic opportunities. The key question is whether the young crown prince can build his new political base faster than his opponents amongst the old, alienated base can regroup and mobilize against him, and do so while his father is still there to provide full and effective backing to his son’s daring moves.